Florida Medicaid Reform: Transformative Change

Paul Lowell & Nathaniel Lacktman, Esq.


On June 2, 2011, Florida Governor Rick Scott signed into law a landmark change to Florida’s Medicaid program, expanding Medicaid-managed care statewide. The reform package, which will be phased in over the next three years, represents the most significant change to Florida’s Medicaid program since the advent of managed care in the 1980s. As states are often the incubators of policies that are later adopted at the federal level, an understanding of Florida’s Medicaid reform package may offer a glimpse into future health care policy changes across the nation.


Florida’s Medicaid program serves approximately 3 million recipients, nearly 45% of those, are already served by managed care organizations. The program, funded in part by the federal government, provides a number of federally required medical services, such as hospital services, as well as a number of optional services, such as prescription drugs. Groups eligible for Medicaid generally include low-income, the elderly, and disabled individuals, as well as children and pregnant women. Florida Medicaid provides health care services through the aforementioned managed care organizations as well as direct contracts with more than 100,000 individual providers on a fee-for-service basis.

Over time, Florida’s Medicaid program has increasingly consumed a greater portion of the state’s budget, approaching nearly one-third of the $69 billion state budget for the 2011–2012 fiscal year. Much of this increase is due to the growth in the number of Medicaid recipients and the scope of services they receive. Indeed, by the 2013–2014 fiscal year, it is anticipated that prior decade growth in recipients will approach 50%, while spending growth will increase by nearly 70%. These growth rates are unsustainable and have been the basis for several attempts over the years to reform Florida’s Medicaid program.

The most recent attempt to reform Florida’s Medicaid program occurred in 2005, under the leadership of then-Governor Jeb Bush. Florida's Medicaid agency, the Agency for Health Care Administration (AHCA), received approval from the federal Centers for Medicare and Medicaid Services (CMS) to implement the reform program over a five- year period. This reform program began in Broward and Duval Counties and subsequently expanded to Baker, Clay, and Nassau Counties in 2007, with the goal of statewide operation by 2011. The program included recipient choice of managed care organizations; premiums that were adjusted for each recipient’s health status; rewards for healthy behaviors; and creation of the Low-Income Pool (LIP), which replaced the Upper Payment Limit and offered enhanced payments to hospitals and other providers to compensate for shortfalls in Medicaid reimbursements. Prior to that, Florida employed other managed care strategies, such as the MediPass program, Provider Service Networks, Children’s Provider Networks, Minority Physician Networks, and Exclusive Provider Organizations, all of which provide primary care services, care coordination, and authorization of specialty care for Medicaid beneficiaries.


During the 2011 Legislative session, the Florida Legislature passed House Bills 7107 and 7109 to implement substantial reforms in the Medicaid program. These reforms will impact nearly every Medicaid provider in Florida by transforming the AHCA from a health care provider to a health care financier. Key features of the new Medicaid reform include:

  • Statewide Managed Care: With a few exclusions, the state’s Medicaid population, including seniors in long-term care, will be served entirely by managed care.
  • Competitive Selection of Managed Care Organizations: The reform package divides Florida into 11 regions, with a minimum number of managed care organizations in each region that a Medicaid recipient may choose from. Managed care organizations will be selected based on a variety of quality selection criteria. Organizations eligible to compete for contracts include health insurers, exclusive provider organizations, health maintenance organizations (HMOs), provider service networks, and accountable care organizations.
  • Network Adequacy: Managed care organizations are required to pay for noncontracted emergency services and maintain a region-wide network of providers that must meet AHCA-defined access standards. Managed care organizations must also generally contract with AHCA-designated “essential” providers.
  • Continuous Improvement: Managed care organizations must meet AHCA-defined performance standards and expected milestones for improving performance.
  • Incentivized Shared Savings: To restrain cost increases, the reform proposal utilizes a shared savings model, called the achieved savings rebate (ASR) in lieu of the medical loss ratio (MLR) model used by the federal government and other states. Under the ASR, managed care organizations may retain up to 7.5% of pretax income as a percentage of revenue, with an additional 1% incentive for managed care organizations that meet AHCA- defined quality measures.
  • Low-Income Pool: LIP funds may be used to compensate hospitals, primary care providers, and primary care access systems to offset shortfalls in Medicaid reimbursements, pay for uncompensated care, and finance coverage for the uninsured. Currently, $1 billion of funds are available each year. Under the new reform proposal, the exact amount of LIP funding will be determined through a negotiation between the AHCA and the federal CMS.
  • Tort Litigation Reform: Health care practitioner liability is limited to $200,000 for a cause of action arising out of services provided to a Medicaid recipient. The cap covers a wide variety of health practitioners, such as physicians, dentists, podiatrists, and nurse practitioners, and extends to business entities under which such practitioners practice.

Statewide Managed Care

Under the reform package, nearly all Florida Medicaid recipients will need to obtain medical services through managed care organizations. Eligible managed care organizations include HMOs as well as provider service networks, accountable care organizations, health insurers, and exclusive provider networks. These organizations may serve a general patient population or a specific population limited by age, chronic diseases, or medical conditions.

Certain population groups are excluded from the Medicaid managed care requirement. These include women eligible only for family planning services, women eligible only for breast and cervical cancer services, noncitizens for emergency Medicaid, and children receiving services in a prescribed pediatric extended care center. Persons excluded from, but who may voluntarily enroll in, Medicaid managed care include the following:

  • Medicaid recipients with other health care coverage.
  • Medicaid recipients residing in residential commitment facilities operated by the Department of Juvenile Justice or mental health treatment facilities.
  • Individuals eligible for refugee assistance.
  • Medicaid recipients residing in a developmental disability center.
  • Medicaid recipients enrolled in the developmental disability home and community based services waiver, and recipients waiting for waiver services.

Competitive Selection of Managed Care Organizations

Beginning July 1, 2012, the AHCA will contract with a limited number of managed care organizations for each of the 11 designated Medicaid regions. The AHCA will award contracts through a competitive bidding process. The AHCA will consider a number of factors when selecting the managed care organizations to receive bid contracts, including the following:

  • Whether or not the managed care organization is nationally accredited.
  • The managed care organization’s experience in serving similar populations.
  • Availability of primary and specialty care physicians in the managed care organization’s network.
  • Establishment of community partnerships by the managed care organization.
  • The managed care organization’s commitment to quality improvement and documented achievements in specific quality improvement projects.
  • Whether the managed care organization will provide additional benefits designed to improve health outcomes.
  • Whether the managed care organization already has written agreements in place or evidence of substantial progress in establishing contractual relationships with providers.
  • Whether the managed care organization has effective policies and procedures designed to prevent fraud and abuse.

In addition, the AHCA will give preference to managed care organizations that:

  • Have signed contracts with a sufficient number of primary and specialty physicians.
  • Have well-defined quality incentive programs offering increased compensation for patient- centered medical homes.
  • Are based in, and perform operational functions in, Florida by staff located in Florida.
  • Have contracts for cancer and diabetes disease management programs with a proven record of clinical efficiencies and cost savings.

Network Adequacy

Under the reform law, managed care organizations must pay for emergency services provided by noncontracted providers. The payment rate will based on the lesser of the provider’s actual charges, the usual and customary rate, the charge mutually agreed to by the managed care organization and provider within 60 days of submission of the claim, or the rate the AHCA would have paid the provider on the most recent October 1 date (i.e., the old fee-for- service rate).

Managed care organizations must also maintain a region-wide network of providers in sufficient numbers to meet certain standards of access to care. This network must include providers classified by the AHCA as so-called “essential” Medicaid providers, including, but not limited to: faculty plans of Florida medical schools; regional perinatal intensive care centers; specialty children’s hospitals; and accredited and integrated systems serving medically complex children.

The governor touted the bills he signed as increasing health care options and patient choice, improves quality of care, and protects taxpayers from skyrocketing Medicaid costs.

Continuous Quality Improvement

The reform law requires the AHCA to establish specific performance standards and quality-of-care milestones managed care organizations must meet over the term of the contract. Key quality improvement standards include:

  • The creation of internal health care quality improvement systems.
  • Collection and reporting of Health Plan Employer Data and Information Set (HEDIS) measures.
  • National accreditation within one year after the contract is executed (for those managed care organizations not already accredited).

Most health plans in the United States measure their quality of health care using HEDIS measures. Examples of HEDIS measures include childhood immunizations, breast cancer screenings, cholesterol management for patients with cardiovascular conditions, and control of high blood pressure. Florida’s reform plan in this respect simply incorporates existing business standards for the industry.

Incentivized Shared Savings

Unlike the Federal Patient Protection and Affordable Care Act (PPACA), and other states’ laws, the Medicaid reform package does not impose an MLR to ensure that managed care organizations provide a certain amount of medical care to patients. Instead, Florida’s reform package employs a shared-savings model, defined as the ASR, under which the AHCA will calculate a managed care organization’s pre-tax income as a percentage of revenues. Managed care organizations will share their income with the AHCA based on three revenue tiers, and ultimately may retain up to 7.5% of pretax income as a percentage of revenue. In addition, a managed care organization that exceeds AHCA’s quality measures to achieve better health outcomes for patients may retain an additional 1% of that revenue.

Florida’s approach differs from the MLR model utilized by the federal government under the PPACA because the Florida Legislature concluded that a shared savings model is a better approach over an MLR, in that a shared savings model focuses on quality, rather than mere cost accounting. Rather than have a minimum direct spend requirement, Florida Medicaid health plans that achieve better health outcomes will be financially rewarded under the ASR model.

In addition, to guarantee immediate savings to the Florida Medicaid program, managed care organizations are required to guarantee the state a savings of 5% in the first contract year. If not, the managed care organization must reimburse the State of Florida the difference.

Low-Income Pool

Under the current Florida Medicaid program, LIP funds have generally been used to compensate hospitals, primary care providers for shortfalls in Medicaid reimbursements, pay for uncompensated care, and finance coverage for the uninsured.

The current funding for LIP is approximately $1 billion annually. Although it is likely that LIP funding will continue to be substantial under Florida’s new reform package, the exact amount of funding will be determined through negotiations between the AHCA and the CMS.

Tort Litigation Reform

Tort reform, particularly in Florida, continues to remain a heated issue for health care cost containment policy. Florida’s Medicaid reform package limits noneconomic damages for personal injury or wrongful death claims arising out of medical care provided to Medicaid recipients. It sets a cap of $200,000 per health care practitioner and $300,000 per claim. Health care practitioners protected by the cap include physicians, chiropractors, podiatrists, naturopaths, optometrists, dentists, midwives, nurse practitioners, and physical therapists. The cap protects any business entity at which the health care professional practices or any employee of the practitioner or entity in the scope of his or her employment. The cap also extends to health care practitioners or business entities whose liability is based on vicarious liability.


In terms of spending and patient growth, PPACA has, and will continue to have, a measurable impact on Florida’s Medicaid program. Most significantly, beginning in 2014, the PPACA expands Medicaid eligibility to include coverage for adults up to 133 percent of the poverty level. Although PPACA provides additional funding for these newly eligible recipients, the funds decline over a period of years. Beginning in 2013, PPACA also increases Medicaid payment rates to primary care providers to 100% of the Medicare rate, but only provides two years of funding.

The AHCA estimates that the impact on the Florida Medicaid program from the PPACA will be significant, resulting in an additional 379,000 Medicaid enrollees in 2014, at an additional cost of $1.5 billion, of which Florida will be responsible for $142 million. Five years later, the AHCA estimates there will be an additional 1.9 million enrollees, at an additional cost of over $7.7 billion, of which the state will be responsible for $1 billion. The PPACA also imposes other costs, such as directing 100% of the federal rebate for brand name drugs to the federal government, at a cost to Florida of approximately $39 million. The AHCA estimates that the cost to fund the increased Medicaid primary care provider rate will be nearly $248 million in 2015. The Florida Legislature has found these costs unsustainable and a significant risk to the future viability of Florida’s budget.


For patients, payers, and health care providers, Florida’s Medicaid reform package represents a transformative change to Florida’s Medicaid program. Individual Medicaid recipients will potentially have a broader array of quality-focused providers from which to seek care, while managed care organizations and health care providers will potentially have new opportunities to serve an expanded base of Medicaid recipients. At the same time, if the reform proves successful, the Florida Legislature will have greater certainty on budgeting and cost containment of a rapidly growing expense to the state budget.

States have historically served as incubators of policies to address the most difficult of government challenges. Even in an era of increasing federal involvement, Florida’s Medicaid reform package serves as a strong indication that states will continue to be relevant players in developing innovative policies to improve the lives of the most needy. //


Paul W. Lowell is a public affairs advisor in Foley & Lardner LLP’s Tallahassee office and a member of the firm’s Government & Public Policy Practice. He has extensive experience in writing and managing health care policy, bill drafting, and legislative research. He may be reached at PLowell@Foley.com.

Nathaniel M. Lacktman is senior counsel in the Tampa office of Foley & Lardner LLP and a certified compliance and ethics professional. He is a member of the firm’s Health Care Industry Team and the Government Enforcement and Compliance Practice. He may be reached at NLacktman@Foley.com.